Electricity Regulation - Akset · 114 Getting the Deal Through – Electricity Regulation 2018...

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ElectricityRegulationContributing editorKirsti Massie

2018© Law Business Research 2017

Electricity Regulation 2018

Contributing editorKirsti Massie

White & Case

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CONTENTS

2 Getting the Deal Through – Electricity Regulation 2018

Global overview 7Kirsti MassieWhite & Case

Angola 8Ricardo Andrade Amaro and Pedro Capitão BarbosaMorais Leitão, Galvão Teles, Soares da Silva & Associados, Sociedade de Advogados, SP, RL

Argentina 13Hugo Martelli Martelli AbogadosRogelio Baratchart Tecnolatina SA

Australia 19Andrew Monotti, Simon Cooke and William OsbornKing & Wood Mallesons

Austria 27Bernd Rajal and Nina ZafoschnigSchönherr Rechtsanwälte GmbH

Belgium 35Arnaud Coibion, Lothar Van Driessche, David Mailleux and Léonore De MullewieLinklaters LLP

Brazil 41Marcello Lobo, Flavia Piras Lodi and Pedro Icaro Lopes VargasPinheiro Neto Advogados

Canada 49Richard J KingOsler, Hoskin & Harcourt LLP

Chile 55José Manuel Larraín and David Acuña BachmannLarraín Rencoret Urzúa Abogados

Costa Rica 64Rubén Zamora-CastroAguilar Castillo Love

Croatia 68Ivana Manovelo, Miran Macesic and Anja GrbesMacesic & Partners LLC

Czech Republic 74Vít Stehlík and David WilhelmWhite & Case (Europe) LLP

Egypt 81Sherief Rashed, Kirsti Massie, Nayera Sherif and Tarek KfouryMHR & Partners in association with White & Case LLP

Germany 86Guido Hermeier and Kristin SpiekermannWhite & Case LLP

Ghana 94Kimathi Kuenyehia, Sarpong Odame and Reginald Nii OdoiKimathi & Partners, Corporate Attorneys

India 104Neeraj Menon, Amit Maheshwari and Arpita ChananaTrilegal

Indonesia 114Arfidea Dwi Saraswati, Gabriella M C Ticoalu and Tara Priscilla OgilvieAKSET Law

Ireland 121Peter McLay, Eoin Cassidy and William CarmodyMason Hayes & Curran

Japan 129Nagahide Sato and Sadayuki MatsudairaNishimura & Asahi

Kenya 136Karim Lalji and Edwin BaruAnjarwalla & Khanna

Korea 142Joonki Yi and Chin Pyo ParkBae, Kim & Lee LLC

Mexico 148Rogelio López-Velarde and Amanda ValdezDentons López Velarde, SC

Mozambique 156Rita Donato and Eliandro BulhaTaciana Peão Lopes & Advogados

Nigeria 162Ike C Ibeku, Ifeyinwa Ufondu and Shammah VidalBenchmac & Ince

Panama 169Erika Villarreal Z, José A Brenes and Ixalondra Chee ChongAnzola Robles & Asociados

Poland 176Michal Zieniewski and Mateusz ZawistowskiWhite & Case M. Studniarek i Wspólnicy – Kancelaria Prawna sp.k.

Portugal 182Ricardo Andrade Amaro and Pedro Capitão BarbosaMorais Leitão, Galvão Teles, Soares da Silva & Associados, Sociedade de Advogados, SP, RL

Russia 189Adam SmithWhite & Case LLC


www.gettingthedealthrough.com 3

CONTENTS

South Africa 196Joz Coetzer, Matthew Richards and Brenda MigwallaWhite & Case LLP

Spain 203Gonzalo Olivera and Alberto ArtésKing & Wood Mallesons

Turkey 209Değer Boden Akalın, Şeyma Olğun and Ayşegül ÖnolBoden Law

United Kingdom 219Kirsti Massie and Katy NormanWhite & Case LLP

United States 228Daniel Hagan, Jane Rueger and John ForbushWhite & Case LLP


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IndonesiaArfidea Dwi Saraswati, Gabriella M C Ticoalu and Tara Priscilla OgilvieAKSET Law

1 Policy and law

What is the government policy and legislative framework for the electricity sector?

Law No. 30 of 2007 on Energy (the Energy Law) and Law No. 30 of 2009 on Electricity (the Electricity Law) are the main laws that govern the electricity sector in Indonesia. Their implementation is regulated under Government Regulation No. 14 of 2012 on Electricity Supply Business Activity, as amended by Government Regulation No. 23 of 2014 (GR 14/2012). Additional regulations are enacted at the presidential, minis-terial and director general level to administer technical matters, such as the procedures to obtain licences for electricity business, sale of power, and national and transnational interconnection. Provincial govern-ments may also issue electricity regulations in line with the Electricity Law by virtue of the laws and regulations on regional autonomy. After the enactment of Law No. 23 of 2014 on Regional Government, as last amended by Law No. 9 of 2015 (Law 23/2014), local government author-ities (those of regents and mayors) have been reassigned to the provin-cial governments (governors).

As electricity is deemed vital and strategic, the business of electric-ity is controlled by the state and held by state-owned and region-owned enterprises, the main such company being PT Perusahaan Listrik Negara (Persero) (PLN). In order to increase the electricity supply, the private sector is also given the opportunity to participate in the sec-tor. The government requires that electricity be provided in sufficient amount, reliable in quality and reasonable in price or tariff for the wel-fare of the people and to achieve sustainable development.

At the policy level, there is a national electricity blueprint endorsed by the government, which outlines the development of the electricity supply system. The blueprint refers to the national energy policy, which is drafted by the National Energy Council and ratified by the govern-ment following consultation with parliament. The national energy policy includes policies on energy supply for national demand, priority of energy development, utilisation of domestic energy resources, and domestic energy support reserves. In 2014, a national energy policy was ratified under Government Regulation No. 79 of 2014 (GR 79/2014 or the National Energy Policy), setting the plan for national energy man-agement to ensure domestic energy security and support sustainable development. The National Energy Policy was further implemented through Presidential Regulation No. 22 of 2017 on National Energy Plan (the National Energy Plan). The National Energy Plan provides central government policies on national energy development through 2025, consisting of, among others, current energy conditions and expecta-tions for the future.

Based on the National Energy Policy, the targets for electricity sup-ply and utilisation are as follows:• increase procurement of primary energy to 400 million tonnes of

oil equivalent (MTOE) by 2025 and 1,000 MTOE by 2050;• increase utilisation of primary energy per capita to 1.4 tonnes of oil

equivalent (TOE) by 2025 and 3.2 TOE by 2050;• increase power plant capacity supply to 115GW by 2025 and 430GW

by 2050; and• increase electricity utilisation per capita to 2,500kWh by 2025 and

7,000kWh by 2050.Further, the national electricity supply plan is implemented through

a decree issued by the Minister of Energy and Mineral Resources

(MEMR) No. 1415 K/20/MEM/2017 on the National Electricity Supply Plan for the period 2017 through 2026 (known as the 2017 RUPTL). An RUPTL provides, among others, a general policy on development of electricity and electricity infrastructure, an update on annual electricity grid status, development of new and renewable energy, supply of pri-mary energy, investment needs, analysis of long-term risks and possible mitigating actions. The 2017 RUPTL changes the electricity supply plan by expanding power capacity outside Java and Bali Islands, prioritis-ing the development of Mine Mouth Steam Power Plants (Mine Mouth PLTU) and Wellhead Gas Power Plants (Wellhead PLTG), and targeting more new and renewable power plant construction and operation for the purpose of achieving optimum primary energy in 2025, in accord-ance with the National Energy Policy.

2 Organisation of the market

What is the organisational structure for the generation, transmission, distribution and sale of power?

Power generation, transmission, distribution and sales may be operated in an integrated manner by one business entity within a business area determined by the government. Electricity generation, transmission, distribution and sale for public use may be organised by business enti-ties owned by the state and local government, as well as by the private sector under an Electricity Supply Business Licence (IUPTL).

PLN, a state-owned enterprise, is the dominant market player and is the primary contributor to the public supply of electricity.

Electricity generation is also allowed for self-use, which requires an operational licence for capacity above 200kVA, a Registration Letter for capacity of 25kVA to 200kVA, and merely a Report to the Director General of Electricity (DGE) for capacity up to 25kVA. Companies in Indonesian industrial zones often generate electricity for self-use and sell any excess power to PLN for use on the Indonesian power grid.

Regulation of electricity utilities – power generation

3 Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

Construction and operation of a power generation facility require an IUPTL issued by the relevant governmental authority: for licences under the jurisdiction of the central government, IUPTLs are now issued by the Indonesia Capital Investment Coordinating Board (BKPM) on behalf of the MEMR, while for licences under the jurisdic-tion of the provincial or local government, IUPTLs are issued by the provincial one-stop integrated service (PTSP) on behalf of the gover-nor. A power purchase agreement between the IUPTL applicant and its buyer (commonly, PLN) is a prerequisite to obtaining an IUPTL.

In terms of constructing generation facilities, an IUPTL holder may subcontract the construction to a qualified construction service provider through an engineering, procurement and construction (EPC) contract. In addition to the laws and regulations governing construc-tion services in general, providers for electrical installation are also governed by the Electricity Law and its implementing regulations, specifically, MEMR Regulation No. 35 of 2013, as amended by MEMR Regulation No. 12 of 2016, on Electricity Business Licensing Procedures (MEMR 35/2013), which classifies electrical installations as electricity


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supporting services, which require an Electricity Supporting Services Business Licence (IUJPTL).

Prior to the commencement of construction, an IUPTL holder must secure several licences from the regional and/or provincial gov-ernment, among others, a building permit (IMB), location permit and environmental licence. Compensation to any party whose assets (land, buildings or plants) are directly or indirectly affected must be settled prior to commencing construction.

Further, in accordance with MEMR Regulation No. 5 of 2014, as amended by MEMR Regulation No. 10 of 2016, on Electricity Procedures and Certification (MEMR 5/2014), prior to the operation of generation facilities, the IUPTL holder must obtain an operational feasibility certificate (SLO) issued by an institution accredited by the MEMR and registered with the DGE, subject to a physical assessment by the technical team from the institution.

4 Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

Generation facilities are connected to the transmission grid subject to a power purchase agreement or a grid lease agreement in accordance with an electricity supply business plan from the transmission operator.

Before connecting to the grid, an electricity installation must satisfy safety and equipment standards determined by the MEMR by securing an SLO from an institution accredited by the DGE.

5 Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

The use of renewable energy sources is encouraged at the policy level through the endorsement of the National Energy Policy, which aims to achieve the best possible energy mix for power production in Indonesia. The National Energy Policy provides that by 2025, energy consumption from new and renewable energy (biomass, nuclear, solar, wind, etc) should reach more than 23 per cent of total energy consumed and that the use of oil should be reduced to less than 25 per cent.

Since 2010, PLN has been provided with a fast-track programme for the development of coal-fired power plants, as well as the use of renew-able energy and gas. Pursuant to MEMR Regulation No. 40 of 2014, there are 58 power plant projects and 40 transmission projects listed as fast-track private public partnerships involving coal, geothermal, water and gas-fired power plants.

Further, Presidential Regulation No. 4 of 2016 on Development of Electrical Infrastructure (PR 4/2016), as last amended by Presidential Regulation No. 14 of 2017, provides that for development of generation facilities using new and renewable energy, the central or regional gov-ernment may give government support in the form of fiscal incentives, feed-in tariffs and outright subsidies.

With regard to feed-in tariffs, the MEMR recently issued MEMR Regulation No. 50 of 2017 on the Utilisation of Renewable Energy for Electricity Supply (MEMR 50/2017), which regulates a new appoint-ment method and purchase price by PLN from renewable power plants.

MEMR 50/2017 provides that power purchase from power plants utilising renewable energy will be made through direct selection, whereas power purchase from renewable power plants that have high dependency on the weather (solar and wind) will be made through direct selection with capacity quota. The regulation further provides that power purchase prices by PLN from renewable power plants will be determined based on a tariff that does not include the electricity dis-tribution price (BPP). As regulated under MEMR Regulation No. 24 of 2017 on the Mechanism for Stipulation of BPP by PLN, both the Local BPP and the National BPP will be determined every year by the MEMR. The prevailing BPP is currently determined through MEMR Decree No. 1404 K/20/MEM/2017 on the Amount of BPP by PLN for Year 2016.

For power plants utilising solar, wind, biomass, biogas and tidal or ocean thermal energy conversion, if the local BPP is higher than the national BPP, the maximum power purchase price by PLN is 85 per cent of the local BPP. If the local BPP is equal to or less than the national BPP, the power purchase price may be determined based on the consent of the parties.

For power plants using hydro, municipal waste or geothermal, if the local BPP is higher than the national BPP, the maximum power pur-chase price by PLN is equal to the local BPP. If the local BPP is equal to or less than the national BPP, the power purchase price may be deter-mined based on the consent of the parties.

6 Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

As part of a commitment to reduce the CO2 emissions from deforesta-tion and forest degradation, since 2010 the government has suspended the issuance of new mining licences in areas that are specified as pri-mary natural forest and peat land (including conservation and pro-tected forest areas). This reduced the potential amount of coal that can be produced for coal-fired power plants in Indonesia. However, given the abundance of cheap coal in Indonesia it is arguable whether this policy will have a substantial impact on the construction and use of coal-fired power plants.

7 Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

There are currently no regulations on electricity storage. In general, the Energy and Mineral Resources Research and Development Body (LITBANG) under the MEMR is responsible for research and develop-ment in the fields of oil and gas, electricity, minerals and coal, new and renewable energy, energy conservation and sea geology. The authority of LITBANG includes organising technical policies and implementing research and development.

8 Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

Both legislation on nuclear energy and the National Energy Policy encourage and provide the opportunity to develop nuclear power plants. However, to date, Indonesia has no commercial nuclear power plants, mainly due to public resistance to nuclear power on health, safety and liability issues and the historical recognition of nuclear waste as a haz-ardous material. The development of nuclear power plants in Indonesia so far goes no further than for the purpose of research under the super-vision of the national nuclear agency (BATAN).

Regulation of electricity utilities – transmission

9 Authorisations to construct and operate transmission networks

What authorisations are required to construct and operate transmission networks?

Main permitBased on GR 14/2012, an IUPTL is required to engage in the transmis-sion business. This may be an IUPTL specifically for transmission, or an integrated IUPTL for power generation that also permits transmis-sion activities. In order to obtain an IUPTL, the applicant is required to submit a transmission network lease or joint use agreement with the candidate user of the transmission network in addition to other admin-istrative and technical requirements regulated under MEMR 35/2013.

Issuing authorityIn accordance with Law 23/2014 and MEMR Regulation No. 35 of 2014 on Delegation to BKPM of Authority in the field of Electricity for Implementation of the One Stop Service (MEMR 35/2014), as last amended by MEMR Regulation No. 14 of 2017, the issuing authority of an IUPTL is now the BKPM or the provincial PTSP.

The BKPM is authorised to issue IUPTLs to entities whose busi-ness areas are cross-province, state-owned enterprises, and those who sell electricity or lease off the electricity grid to an IUPTL holder whose licence was granted by the central government. The provincial PTSP is


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authorised to issue IUPTLs to entities whose business areas are cross-regency and who sell electricity or lease off the electricity grid to an IUPTL holder whose licence was granted by the provincial government. Further, the provincial PTSP is now authorised to issue IUPTLs to enti-ties whose business areas are within a single regency or city and who sell electricity or lease off the electricity grid to an IUPTL holder whose licence was granted by the local government.

Other licencesIn addition to the above, the IUPTL applicant must secure an IMB, location permit, and an environmental licence from the local govern-ment and must compensate any party whose assets (land, buildings, or plants) are directly or indirectly affected by the transmission network. Before commencing operation, a transmission installation must secure an SLO issued by an accredited technical inspection institution.

Please note that private investment in power transmission and dis-tribution in Indonesia is very rare to date, as transmission and distribu-tion historically have been monopolised by PLN.

10 Eligibility to obtain transmission services

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

Any party that provides power to the grid (including an IPP) and that holds an IUPTL may have access to the transmission or distribution grid in order to supply power to the public. Specifically for IPPs, access to the grid is subject to the PPA with PLN governing the terms of the IPP’s electricity transfer to PLN’s transmission grid.

Other than the above, access to the grid may also be obtained through a lease agreement between the holder of an IUPTL for trans-mission and the user of the grid. The fee for such lease must be approved by the MEMR or governor, according to their jurisdiction.

An IUPTL holder who produces power and owns and operates a transmission network is also eligible to access transmission and distri-bution networks.

Utilisation of transmission or distribution networks for telecommu-nications, multimedia and information purposes is permissible, subject to a licence issued by the BKPM (on behalf of the MEMR), provided that such utilisation does not compromise power supply in the area.

11 Government transmission policy

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

Since 2010, the government has assigned PLN to develop electric-ity infrastructures to meet the target of 35,000MW power generation and 46,000km transmission grid across Indonesia, particularly with the issuance of MEMR Regulation No. 15 of 2010 on List of Fast Track Projects in Renewable Energy, Coal and Gas Power Generation and the Relevant Transmissions, as amended four times, lastly by MEMR Regulation No. 40 of 2014. Consistent with this objective, PR 4/2016 specifically provides government financial support for the develop-ment of electrical infrastructures, including transmission grids, by PLN through an independent management scheme.

Despite the regulations allowing private sector involvement in elec-tricity transmission, the historical monopoly on transmission by PLN is expected to continue for some time. The expansion of transmission net-works by the private sector may likely take longer to realise, considering that the government incentives to encourage the development of trans-mission networks for private entities were only just introduced in early 2016. They are, among others, in the form of delegation of land acqui-sition to government institutions on behalf of private entities, and an increase in foreign ownership permitted in mid-high-voltage electricity.

12 Rates and terms for transmission services

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

The tariff for leasing transmission services is regulated by the govern-ment (ie, MEMR, governor), depending on the location of the transmis-sion network.

Transmission services may be leased through a network lease agreement between the transmission operator and another transmis-sion operator.

The parties to a network lease agreement, through a Transmission Business Entity, may propose the price of power transmission by sub-mitting a written application to the MEMR or governor for approval pur-suant to MEMR Regulation No. 1 of 2015 on Cooperation for Electricity Supply and Joint Utilisation of Electrical Grid. The approved price or fee from the relevant authority may be in the form of a benchmark price.

13 Entities responsible for grid reliability

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

The MEMR, through the DGE, is responsible for assuring the reliabil-ity of the transmission grid. An inspector from an accredited technical inspection institution will issue an SLO in connection with the installa-tion and operation of the transmission grid.

In the event of non-compliance, the inspector may recommend suspension of the activities of the service provider, which may result in revocation of its operational licence.

Regulation of electricity utilities – distribution

14 Authorisation to construct and operate distribution networks

What authorisations are required to construct and operate distribution networks?

An IUPTL is the main licence needed to construct and operate distri-bution networks. The IUPTL can be issued specifically for distribution, or distribution can be included in an integrated IUPTL that covers gen-eration, transmission and sales. The BKPM (on behalf of the MEMR), or the provincial PTSP, depending on the jurisdiction, is the relevant authority to issue an IUPTL.

An IUPTL for distribution requires:• stipulation of electricity business area by the BKPM (on behalf of

the MEMR);• approval of electricity selling price or transmission lease price by

the MEMR;• approval of the applicant’s electricity supply business plan; and• a distribution network lease or joint-use agreement with the candi-

date user of the distribution network.

The stipulation of an electricity business area (WIUPTL) as a pre-requisite to apply for an IUPTL for distribution is subject to the proce-dures outlined in MEMR Regulation No. 28 of 2012 as lastly amended by MEMR Regulation No. 7 of 2016 on Procedures for Application for WIUPTL for Public Interest. Note that there may only be one business entity in a given WIUPTL. A WIUPTL may only be granted if the terri-tory is not yet reached by a business entity covering a WIUPTL or if the business entity covering a WIUPTL in such territory is not capable of meeting electricity demands. Similar to transmission, despite the regu-lations allowing private sector involvement in the distribution business, the historical monopoly on distribution by PLN as the holder of most WIUPTLs in Indonesia is expected to continue for some time.

Similar to the transmission sector, the distribution applicant must also obtain a building permit (IMB), a location permit and an envi-ronmental licence from the local government and settle with any party whose assets (land, buildings or plants) are directly or indirectly affected by the distribution network.

15 Access to the distribution grid

Who is eligible to obtain access to the distribution network and what requirements must be met to obtain access?

Any party that provides power to the grid (including an IPP) and that holds an IUPTL may access the distribution grid in order to supply power to the public. Access to the grid must be evidenced by a lease between the holder of the IUPTL for distribution and the user of the grid. The fee for such a lease must be approved by the MEMR or governor.

Utilisation of electricity distribution networks for telecommunica-tions, multimedia and information purposes is permissible, subject to


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a licence from the BKPM or provincial PTSP, provided that such utilisa-tion does not compromise power supply in the area.

16 Government distribution network policy

Are there any governmental measures to encourage or otherwise require the expansion of the distribution network?

Similar to the transmission business, distribution is technically open to the private sector. However, in practice, even private IPPs are still relying on PLN’s distribution grid to supply their power to end users. In terms of regulator involvement, MEMR Regulation No. 4 of 2009 on Provisions on Electricity Distribution stipulates a code of conduct for the distribution business, including standard policies for distribution, connection, operation, planning and settlement. Government incen-tives for private sector distribution business are not currently available.

17 Rates and terms for distribution services

Who determines the rates or terms for the provision of distribution services and what legal standard does that entity apply?

The tariff for the lease of distribution services is regulated by the gov-ernment (MEMR or governor) depending on the location of the distri-bution network.

Distribution, as well as distribution services, may be leased through a network lease agreement between the distribution operator and another distribution operator.

The parties to the network lease agreement may propose the price of power distribution by submitting a written application to the MEMR or relevant governor. The approved fee may be in the form of a bench-mark price.

Regulation of electricity utilities – sales of power

18 Approval to sell power

What authorisations are required for the sale of power to customers and which authorities grant such approvals?

Indonesia recognises two types of power sales: from one IUPTL to another IUPTL, and from an IUPTL holder to end users.

An IUPTL is required for all entities engaging in the power sales business. However, for sales from one IUPTL to another IUPTL, the purchaser must conduct a public tender, and the proposed purchase of power must conform to the electricity supply business plan approved by the MEMR. The public tender requirement does not apply, and the purchaser may directly appoint its desired party, under the following circumstances:• where the power originates from a generator using renewable

energy, marginal-gas, mine-mouth coal or other local energy;• in connection with the purchase of excess electricity; • in a power supply crisis or emergency; and• expansion of power plant capacity in the same operating power sta-

tion in the same area.

In the event that power sales are in the framework of diversification of energy for non-fuel power generation, then the purchaser may compare and choose from at least two bidders that have submitted proposals.

19 Power sales tariffs

Is there any tariff or other regulation regarding power sales?

Yes. As mentioned in question 18, there are two types of power sales and, therefore, there are two types of tariff. Basically, for on-grid power sales (from one IUPTL to another IUPTL), the tariff is developed through a public tender process with the agreed price approved by the relevant authority (MEMR or the Governor). The government has provided sev-eral feed-in tariffs for purchase of electricity from IPPs for certain power generators (eg, MEMR Regulation No. 50 of 2017 on the Utilisation of Renewables for Power Generation and MEMR Regulation No. 19 of 2017 on the Utilization of Coal for Power Generation and Purchase of Excess Power).

In Indonesia, the term ‘tariff ’ is used in connection with the price of electricity to end users. Pursuant to GR 14/2012, tariffs for electricity sold to consumers are determined by the MEMR or governor, subject

to approval by the provincial or national house of representatives. For PLN, as a state-owned enterprise whose licence is granted by the cen-tral government, the tariffs are determined by the MEMR. The prevail-ing tariff for PLN is stipulated from time to time and lastly under MEMR Regulation No. 28 of 2016 on the Tariff of Electricity Supplied by PLN (MEMR 28/2016), as last amended by MEMR Regulation No. 41 of 2017. In such regulation, tariffs vary depending on the use of the electricity (for example, for household, business, or industrial purposes, or for wholesale) and the power of electricity (for example, 450VA).

In Indonesia, the electricity supply sector is monopolised by PLN, and the electricity tariff provided by PLN is divided into two categories: a regular post-paid tariff and a prepaid tariff.

Electricity is considered a good with a strategic purpose and is therefore exempted from VAT, except for in housing with capacity of more than 6,600W.

20 Rates for wholesale of power

Who determines the rates for sales of wholesale power and what standard does that entity apply?

Similar to power sale tariffs mentioned in question 19, wholesale power tariffs are determined by the MEMR or governor, subject to approval from the provincial or national house of representatives, depending on where the wholesale power is generated and sold. For wholesale elec-tricity provided by PLN pursuant to MEMR 9/2015, the threshold for wholesale electricity is electricity above 200kVA.

21 Public service obligations

To what extent are electricity utilities that sell power subject to public service obligations?

The underlying constitutional principle of the Electricity Law is article 33 of the 1945 Constitution of the Republic of Indonesia, which stipu-lates that sectors of production that are vital to the state and affect the greater livelihood of the people shall be under the power of the state. That article also provides that the land, waters and natural resources of the country shall be under the powers of the state and used for the great-est benefit of the people. The core of the Electricity Law and electricity supply, therefore, is to achieve social welfare.

In accordance with the Electricity Law, electricity should be: • supplied in sufficient amount;• reliable in quality;• reasonable in price and tariff;• for the welfare of the people; and • able to achieve sustainable development.

Further, the Energy Law provides that the purpose of energy develop-ment is to increase energy access for unfortunate and isolated citizens and to reduce regional disparity with respect to availability of sufficient power and related infrastructures.

Other than the general policy objectives, there are no specific public service obligations.

Regulatory authorities

22 Policy setting

Which authorities determine regulatory policy with respect to the electricity sector?

At the central government level, the highest authority is the House of Representatives, which has full authority to promulgate laws on elec-tricity. Second is the President, who has authority to determine poli-cies, regulations, management, and implementation of the electricity supply. The MEMR monitors and supervises the electricity sector and implements the policies, law and regulations, and maintenance of elec-tricity supply, including but not limited to establishing technical regula-tions and issuing licences. Under the MEMR is the DGE, who has the authority to formulate and carry out policies and technical standards under the MEMR.

The National Energy Council is responsible for developing the National Energy Policy for the House of Representatives’ approval, most recently the National Energy Policy for the period 2014–2050.

In some regions in Indonesia, the provincial (and regional) govern-ment may promote electricity development by giving support to certain


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types of IPP, such as mine-mouth coal-fired power plants, in the form of accelerated issuance of permits, licences, approvals and recommen-dations. For example, in April 2014, the Governor of Sumatera Selatan issued a letter supporting the development of mine-mouth coal-fired power plants that utilise low-rank coal (below 3,000kcal/kg) and offer-ing to assist in the process of obtaining location permits and environ-mental licences. Such preference is not recognised by the MEMR, which gives the same treatment for every type of IPP.

23 Scope of authority

What is the scope of each regulator’s authority?

The provincial and national houses of representatives reserve the right as consultation regulatory bodies for the central and provincial governments when drafting the national electricity master plan and giving approval of electricity tariffs. As for the central government, the main authorities are allocated between the MEMR and the BKPM, as follows.

MEMR• Stipulate electricity guidelines, standards and criteria;• set guidelines in determining consumer electricity tariffs; • set electricity tariffs for certain consumers and electricity network

leasing from IUPTL holders determined by the central govern-ment; and

• approve the sale of excess electricity from operational licence hold-ers determined by the central government.

BKPM• Stipulate IPP business areas;• issue IUPTLs for cross-province IPPs;• issue cross-province operational licences (for self-use);• issue power support service licences;• issue cross-border power purchase and sale licences;• issue geothermal preliminary survey assignments;• issue geothermal licences;• issue geothermal support service approvals;• issue explosives storage licences for the geothermal industry;• issue IUPTLs for state-owned enterprises, foreign investors or for-

eign majority share ownership;• issue licences for implementation of electricity networks for tel-

ecommunications, multimedia and informatics; and • impose administrative sanctions on business entities whose

licences are issued by the central government.

The DGE has the authority to stipulate implementing regulations of MEMR regulations and to supervise and monitor the electricity sector.

At the provincial level, the provincial PTSPs hold similar licensing authorities with the BKPM, but as apply within the limits of their respec-tive jurisdictions.

24 Establishment of regulators

How is each regulator established and to what extent is it considered to be independent of the regulated business and of governmental officials?

The electricity sector is regulated exclusively by the central and provin-cial governments. There is no independent regulatory authority.

25 Challenge and appeal of decisions

To what extent can decisions of the regulator be challenged or appealed, and to whom? What are the grounds and procedures for appeal?

The forum to challenge or appeal a regulation or decision of a regulatory body (provincial and national houses of representatives, the MEMR or governor, and the DGE) depends on whether the decision affects pub-lic or private interests. Permits, licences and approvals affecting private interests are challenged through the Administrative Court based on Law No. 15 (1985) on Administrative Court, as amended. In the event a regulatory instrument affects the public interest (ie, issuance of a law or regulation), judicial review can be requested in the Constitutional Court (for laws) or Supreme Court (for regulations).

Acquisition and merger control – competition

26 Responsible bodies

Which bodies have the authority to approve or block mergers or other changes in control over businesses in the sector or acquisition of utility assets?

It is important to note that to engage in electricity business in Indonesia the investor must establish a single purpose company, which cannot engage in multiple business sectors. Therefore, merger with or acquisi-tion of a company in another sector is not allowed.

However, it is possible for an electricity company to be acquired by a company that engages in another sector. In general, the acquisition procedures will require the company to obtain an in-principle licence for change of shareholders of the target company from the BKPM, in the event that the company is a foreign investment (PMA) company or a local investment (PMDN) company registered with the BKPM.

In the event that an acquiring company that holds a company engaging in the electricity sector intends to acquire another company engaging in the electricity sector (ie, a parent company of a transmission network company intends to acquire a distribution network company), it may be subject to review by the Commission for Supervision of Business Competition (KPPU), which has the authority to unwind mergers and acquisitions that lead to monopoly, anticompetitive business practices, or market concentration. Under the Electricity Law, PLN as a state-owned enterprise has been prioritised to conduct electricity business in Indonesia, including generating and providing electricity. As such, PLN is exempt from the Anti-Monopoly Law (Law No. 5 of 1999).

Besides the KPPU, under Indonesian investment regulations, acquisition transactions shall always refer to the Negative Investment List based on Presidential Regulation No. 44 of 2016, which regulates foreign share ownership of specific sectors, including electricity.

27 Review of transfers of control

What criteria and procedures apply with respect to the review of mergers, acquisitions and other transfers of control? How long does it typically take to obtain a decision approving or blocking the transaction?

Based on Government Regulation No. 57 of 2010 on Merger or Consolidation of Business Entities, the KPPU’s assessment is based on the resulting asset value of the company after merger or acquisition. Transactions resulting in combined assets exceeding 2.5 trillion rupiah or combined sales turnover exceeding 5 trillion rupiah are required to notify the KPPU no later than 30 days after the transaction takes effect. The KPPU will review the transaction within 90 days of receiving notifi-cation. Delay in notifying the KPPU can result in fines of 1 billion rupiah per day, up to 25 billion rupiah.

Notification to the KPPU is not required for merger or acquisition between affiliated companies.

28 Prevention and prosecution of anticompetitive practices

Which authorities have the power to prevent or prosecute anti-competitive or manipulative practices in the electricity sector?

The KPPU has the authority to investigate, review and sanction anti-competitive behaviour by companies. Because the only significant player in the electricity sector to date is PLN, and electricity tariffs are stipulated or approved by the government, anticompetition concerns have not arisen in Indonesia.

29 Determination of anticompetitive conduct

What substantive standards are applied to determine whether conduct is anticompetitive or manipulative?

Pursuant to the Anti-Monopoly Law, there are three prohibited catego-ries. First, the law prohibits contracts that have elements of:• oligopoly;• price-fixing;• dividing territory;• boycotting;• cartels;• trusts;


AKSET Law INDONESIA


• oligopsony;• vertical integration; or• exclusive dealing.

Second, the law prohibits activities that lead to monopoly, monopsony, market dominance, and conspiracy. The difference between prohibi-tion of contracts and activities is the scope of the prohibition. The pro-hibition of contracts only applies to arrangements between two or more business entities, while the prohibition of activities could apply to a sin-gle business entity.

The third category involves prohibition of the abuse of a market dominant position. The abuse of market dominance provisions of the Anti-Monopoly Law focus on regulating interlocking directorates, share ownership, and mergers, acquisitions and dissolutions.

30 Preclusion and remedy of anticompetitive practices

What authority does the regulator (or regulators) have to preclude or remedy anticompetitive or manipulative practices?

The KPPU has the authority to preclude or remedy anticompetitive or manipulative practices by:• appraising contracts and activities that may cause anticompetitive

practices;• giving suggestions and recommendations related to anticompeti-

tive practices;• investigating cases that may cause anticompetitive practices; and• imposing administrative sanctions on business entities that violate

the Anti-Monopoly Law including:• cancelling an agreement that causes anticompetitive practices;• ordering the entrepreneur to stop anticompetitive activities;• cancelling a merger, acquisition, or dissolution;• determining compensation; and• issuing fines up to 25 billion rupiah.

International

31 Acquisitions by foreign companies

Are there any special requirements or limitations on acquisitions of interests in the electricity sector by foreign companies?

The current Negative Investment List provides some limitations on for-eign ownership in the electricity sector. Power generation under 1MW is closed to foreign investors. Generation from 1MW to 10MW may be conducted through a partnership with local entities in which foreign investors are limited to 49 per cent share ownership (67 per cent for geothermal), while, for electricity generation above 10MW, electricity transmission, and distribution, the foreign investor may hold up to 95 per cent, or 100 per cent in the context of public–private partnership during the concession period.

The Negative Investment List now also allows up to 49 per cent foreign investment for construction and installation of mid- and high-voltage electricity facilities, which formerly was restricted to domestic investment. For producers of biomass pellets, foreign investors may own 100 per cent shares with no further requirement for entering into a joint venture or partnership with a local company. The above foreign ownership limitations do not apply for companies operating in special economic zones (Kawasan Ekonomi Khusus – KEK).

32 Authorisation to construct and operate interconnectors

What authorisations are required to construct and operate interconnectors?

The Electricity Law recognises transmission and distribution grids as the only form of interconnectors. The transmission and distribu-tion business is subject to IUPTL as the main operating licence. A WIUPTL must be secured prior to the IUPTL application. As previously explained, there may only be one business entity in a WIUPTL.

The applicant must also secure an IMB, location permit, and an environmental licence from the local government and must compen-sate any party whose assets (land, buildings or plants) are directly or indirectly affected by the transmission or distribution network. Furthermore, in accordance with MEMR Reg 5/2014, a transmission or distribution installation must secure an SLO before being allowed to operate.

33 Interconnector access and cross-border electricity supply

What rules apply to access to interconnectors and to cross-border electricity supply, especially interconnection issues?

Cross-border electricity supply through sale and purchase may be con-ducted by an IUPTL holder with an additional licence from the BKPM, including cross-border interconnection or joint use of network licence. Cross-border electricity sales may be conducted on the condition that:• the domestic electricity demand has been fulfilled;• the sale price of the electricity is not subsidised; and• the cross-border electricity sale must not interfere with the quality

and reliability of domestic supply.

Cross-border electricity purchases may be conducted if:• domestic electricity demand has not yet been fulfilled;• the purchase supports fulfilment of domestic demand;• the purchase does not harm the interest of the state;• the purchase improves the quality and reliability of the domestic

supply;• the purchase does not create dependency on foreign sources; and• the purchase does not neglect the development of domestic elec-

tricity supply capacity.

The price of cross-border electricity must be related to the economic value of the electricity and must be approved by the MEMR.

Arfidea Dwi Saraswati [email protected] Gabriella M C Ticoalu [email protected] Tara Priscilla Ogilvie [email protected]

The Plaza Office Tower, 29th FloorJl MH Thamrin Kav 28–30Jakarta 10350Indonesia

Tel: +62 21 2992 1515Fax: +62 21 2992 1516www.aksetlaw.com


INDONESIA AKSET Law


Cross-border electricity sale and purchase activities are also sub-ject to customs regulations. There is no tariff for cross-border electricity interconnection in Indonesia.

Further study of extra high-voltage cross-border interconnection between Indonesia and Malaysia through the Sumatera and Borneo grids is still progressing. Indonesia is in the process of amending its regulations regarding cross-border interconnection, including updating Presidential Regulation No. 77 of 2008 on Ratification of Memorandum of Understanding on the ASEAN Power Grid and Government Regulation No. 42 of 2012 on Cross-Border Power Purchase.

Transactions between affiliates

34 Restrictions

What restrictions exist on transactions between electricity utilities and their affiliates?

To date, there are no rules that restrict transactions between an entity carrying out electricity supply business and its affiliates, although in gen-eral, affiliated transactions are required to follow the arm’s-length prin-ciple, and arm’s-length pricing documentation should be maintained.

State-owned enterprises are allowed to directly appoint their affili-ates for goods and services procurement under certain conditions, as long as the arm’s-length principle is also met.

35 Enforcement and sanctions

Who enforces the restrictions on utilities dealing with affiliates and what are the sanctions for non-compliance?

Affiliated transactions are subject to scrutiny by the Directorate General of Taxation, which has an aggressive transfer pricing unit. Sanctions for improper transfer pricing involve stiff penalties.


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